Is a Budget Licensee allowed to become a public company, either directly or indirectly?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
- (d) No Public Offering.
Licensee covenants not to be or become, a public company directly or indirectly including, by way of an initial public offering or transfer to or merger with an existing public company.
Accordingly, securities of Licensee or an entity owning a direct or indirect equity interest in Licensee, this Agreement, any of Licensee's assets or any of the Rental Business Locations may not be offered pursuant to a public offering or merged with an existing public company.
- (e) Limitations on Private Offerings.
Licensee acknowledges and understands that Budget may not consent to Licensee's private offering if Budget determines, in its sole discretion, that such an offering is not in the best interest of Budget or its franchise system.
If Budget allows a private offering, Licensee will need to pay a higher transfer fee, as reasonably determined by Budget, and meet the other Transfer Requirements contained in Exhibit F.
Source: Item 23 — RECEIPTS (FDD pages 80–426)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, a licensee is prohibited from becoming a public company, either directly or indirectly. This restriction includes actions such as an initial public offering (IPO) or merging with an existing public company. The agreement specifies that securities of the licensee, or any entity with a direct or indirect equity interest in the licensee, the Budget License Agreement itself, the licensee's assets, or the rental business locations cannot be offered in a public offering or merged with a public company.
This provision ensures that Budget maintains control over its brand and franchise system. By preventing licensees from going public, Budget can better manage the consistency and quality of its operations across all locations. Public companies are subject to different regulatory requirements and may have priorities that conflict with Budget's strategic goals.
However, the FDD does state that Budget may, at its sole discretion, allow a licensee to conduct a private offering, but this would require the licensee to pay a higher transfer fee and meet other transfer requirements outlined in Exhibit F. This suggests that while public offerings are strictly prohibited, private offerings may be considered on a case-by-case basis, subject to Budget's approval and certain conditions.
Prospective franchisees should carefully consider this restriction, as it may impact their long-term business plans and exit strategies. If a franchisee anticipates wanting to take their business public in the future, the Budget franchise may not be the right fit. It would be prudent to discuss these limitations and the conditions for private offerings with Budget during the due diligence process to fully understand the implications.